Search News:

February 22, 2013 10:21 AM Eastern Time

Fitch: Strengthened EM Bank Supervision Positive; More Required

CHICAGO--(BUSINESS WIRE)--Regulatory supervision of rapidly growing banks in emerging market (EM)
economies has improved markedly over the past two decades, but the
constantly evolving nature of business and regulatory trends in
developed markets requires further strengthening of EM banking
regulation. Fitch Ratings believes that banking regulators must quickly
attempt to reduce regulatory asymmetries in order to cope with the
already significant and growing regionalization of EM banks.

Many EM countries have reported improving credit quality in recent
years, and sovereign ratings have increasingly migrated into the
investment-grade arena. In addition, solid loan growth has paved the way
for deeper banking concentration in those economies. As a result, the EM
banking world is much healthier than in the 1990s.

Over the last 20 years, EM banking regulation has improved, in large
part, as a result of a need to avoid a repeat of past financial crises
that jeopardized the growth of emerging economies and the health of
their banks. In particular, more conservative capital rules have been
established across most EM banking systems, and compliance and
accounting-oriented supervision techniques are giving way to risk-based
frameworks that more closely mirror developed market regulatory
approaches.

In addition, foreign currency regulations have been tightened (more so
in Latin America and EM Asia than emerging Europe) and related-party
transactions are becoming less frequent as disclosure improves. In many
EM systems, domestic regulators have been given more legal authority to
carry out bank supervision.

Still, not all EM bank regulatory frameworks are equally robust, and the
need for tougher supervision is growing, as banks' retail exposure
expands, introducing new risk management problems. Further, as EM banks
continue to expand internationally, the need for enhanced regulatory
harmonization within regions will increase.

Compliance with the Basel III capital regulation framework does not pose
an imminent threat to most EM banks due to their generally healthy
capital positions. Most EM systems are pushing banks' average Tier 1
capital ratios above 10%. But definitions of capital and risk-weighted
assets differ significantly between countries, and macro pressures could
slow the implementation of Basel III standards in EM banking systems.

However, despite currently healthy capital positions there is no room
for complacency. We believe banks should strive jointly with regulators
to preserve and enhance such capital in order to properly fund expected
expansion while maintaining enough capital to cover unexpected losses.

Many of these themes will be discussed in greater detail in Fitch's
upcoming presentation at the J.P.Morgan Emerging Markets Corporate
Conference in Miami on Feb. 26, 2013

The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE.